Right Air Supply sells a specialized air filter that has a variable cost of $10 each. Fixed costs are estimated to be $700,000 across all levels of sales shown below: $$\begin{array} { c c }
\text { Units Demanded } & \text { Unit Price } \
80,000 & \$ 35 \
90,000 & \$ 33 \
100,000 & \$ 31 \
110,000 & \$ 30 \
120,000 & \$ 28
\end{array}$$ What price should Right Air Supply charge to maximize profits?

Question

Right Air Supply sells a specialized air filter that has a variable cost of $10 each. Fixed costs are estimated to be $700,000 across all levels of sales shown below: $$\begin{array} { c c } 
\text { Units Demanded } & \text { Unit Price } \
80,000 & \$ 35 \
90,000 & \$ 33 \
100,000 & \$ 31 \
110,000 & \$ 30 \
120,000 & \$ 28
\end{array}$$ What price should Right Air Supply charge to maximize profits?

Quizplus · Accepted Answer

To maximize profits, calculate the profit for each price point: Profit = (Price - Variable Cost) * Units Demanded - Fixed Costs. The highest profit occurs at a price of $30 with 110,000 units demanded.

Right Air Supply Sells a Specialized Air Filter That Has